the showdown over the budget. with the country running out of money and time, tonight the president and key members of congress try to make a deal. on a mission. the secretary of defense in iraq confronting a new threat to u.s. troops. shoptalk. if summer has just begun, what's the deal with all these back to school sales? and they're calling it karmageddon. an event so big, how one major city is gearing up to go nowhere fast.

from nbc world headquarters in new york this is nbc nightly from nbc world headquarters in new york this is nbc nightly news with lester holt. captions paid for by nbc-universal television as we come on air this sunday meeti ievening a criticag is under way with president obama at the white house. standing in the way, republic republicaninrepublicans trying to hold the line against tax increases and democrats unhappy over changes to medicare and medicaid. hanging in the balance, an august 2nd deadline to give the government authority to borrow the money it needs to pay its bills. nbc's mike viqueira is at the white house to bring us the latest. >> reporter: you're absolutely right. the president is at this moment in the cabinet room, the west wing. house and senate leaders, republican and democrat. at the top of the meeting reporters asked the president whether he needs to come to an a agreeme agreement. there's an impasse now over the next ten days in order for

congress to have the time to pass a bill before the august 2nd deadline. the president replied, we need to. these are major hopes for a grand bargain. a major deal on deficit and debt reduction has taken a major hit in the last 24 hours. the president returned home from camp david this afternoon with hopes for an ambitious deal on cutting the debt now fading. but even after republicans pulled the plug late last night over the issue of taxes, top obama officials are still pushing for a larger deal. >> we're going to try to get the biggest deal possible. the deal that's best for the economy. >> reporter: but republicans refuse to budge on raising taxes. >> to get a big package would require big tax increases in the middle of an economic situation that's extraordinarily difficult with 9.2% unemployment. it's a terrible idea. it's a job killer. >> reporter: with the government virtually broke, congress has just three weeks to vote on raising the country's debt limit. that would allow more borrowing and divert the first treasury

default in american history. >> if that happens you're going to see catastrophic damage across the american economy and across the global economy. failure is not an option. >> reporter: republicans will not allow a vet on raising the debt limit unless there's first a deal on cutting the deficit. a deal they say cannot include a tax hike. >> i've never found one tax increase that created a job. >> reporter: until last night both sides were considering a proposal that called for more than $4 trillion in deficit reduction. with roughly a quarter coming from taxes. the rest with cuts to spending including social security and medicare. that's unpopular with democrats, but proof the white house says, of the president's willingness to compromise and suffer political pain. >> we've got medicare and social security. medicare has got to be strengthened. it will run out of money in five years if we don't do something. >> reporter: with republicans refusing any tax increases, the question now is can the deal with salvaged? the white house insists that it can. heading into the meeting tonight, the two sides seemed as far apart as ever.

>> what is really appalling is to see our republican colleagues essentially providing a form of extortion. if you don't agree to deficit reduction the way we want it, we're going to put all these jobs at risk because we're going to allow the united states to default on its debt. >> reporter: lester, republicans say they want to essentially restart talks that vice president biden had under way last month. trouble is, they had walked away from those talks over the issue of taxes. lester? >> mike viqueira, thanks. let's bring in our chief white house correspondent and political director chuck todd. chuck, how much influence has the tea party had in moving republicans away from this idea of a $4 trillion package of cuts? >> they had a lot of influence, lester. the reason why speaker boehner had to bakeck away from the ide of grand bargain, over the last 48 hours both parties have been taking the temperature of their bases when it comes to democrats trying to figure out if there was support for some of these tough medicare and social security cuts and republicans trying to figure out if they could do massive tax reform

that, in the long run, would bring in a trillion dollars in tax revenues that would go to deficit reduction. and the bottom line is john boehner's deputy, eric cantor, was very skeptical. and he didn't have the support. boehner didn't have the support. if he had had the support and the political capital, we wouldn't be in the situation we're in. >> he doesn't get the support. this is in many ways a test of his leadership. how does he do? >> he decided not to test his leadership. that's the issue here, lester. he made the decision that he didn't have -- he didn't want to risk what could split his party. you have all of the presidential candidates that would have been on one side of this saying no to any sort of tax increase at any given time. and that would have put the base of the party at -- at risk with john boehner and making it where he could have risked his own speakership. >> where does this leave the president? what options does he have at this point? >> he doesn't have many. tonight i'm told he's going to

make one more push for this grand bargain for the big deal to talk one more time that he is going to be the guy that's willing to put medicare and social security on the table if they'll do something with taxes. while that's unlikely to be the case, then he's going to ask both sides to come up with counterproposals. something along the lines of $2.5 trillion to try to come to them and say, this is what could actually pass. but this big grand bargain looks like it is totally out the window. >> chuck todd is our washington newsroom tonight, thanks. we turn overseas now to iraq where the remaining 46,000 american troops are supposed to come home at the end of the year. today in his first visit to iraq as secretary of defense, leon panetta turned up the heat on the iraqi government with the aim of making the country much more secure. nbc's jim miklaszewski is in baghdad tonight. jim? >> reporter: lester, for most americans iraq has become the forgotten war. but all that was shattered last month when 15 american soldiers were killed here. the highest monthly death toll

in more than two years. secretary panetta who arrived here today claims the americans were targeted and killed by roukrouk iraqi extremists with especially lethal weapons provided by iran. rockets that actually have trash cans welded to them loaded with 200 pounds of explosives. while here secretary panetta intends to pressure the iraqi government to put a stop to these deadly attacks. >> i would like for iraq to exert more of an effort to go after those that -- those extremists that are making use of these weapons. that if we are going to be partners, they have a responsibility to be able to protect against that kind of attack. >> reporter: this comes as iraqries are expected to ask the u.s. to keep some forces here beyond the deadline for withdrawal of all americans from iraq by the end of this year.

u.s. officials say that some 8,000 to 12,000 forces could stay behind to help the iraqis with security and training. but all this could be a very hard sell back home for the obama administration if americans here are still dying. lester? >> nbc's jim mitch klaszewskimi >> tonight a new sign of discord, the obama administration confirms it has suspended $800 million in military aid to pakistan. that's about a third of the yearly total. the move is aimed at getting pakistan to do more in the battle against extremists. there's news about a brutal war closer to home tonight. just when it comes mexico's deadly drug war can't get any worse, there was a vicious new wave of violence this weekend not far from the u.s. border. nbc's kevin tibbles has the latest.

>> reporter: it has been a weekend of carnage in mexico as vicious fighting between notorious drug cartels has left some 40 people dead. in one grizzly attack, gunmen wielding ak-47 automatic weapons opened fire in a crowded bar where police allege drugs were being sold. 21 people killed when the bar was sprayed with bullets. more than 500 miles away, 11 more bodies shot with high-powered rifles were found in a pile near a water well. in an area terrorized by a gang known as the knight's templars. some victims were blindfolded with their hands bound. the attacks occurred in three places. the nor they shall economic center of monterey also on the outskirts of mexico city, the country's largest urban area. and in torillon, another major industrial hub two hours from the american border. >> this is immensely more violent than the ongoing combat in afghanistan.

mexico matmatters. it's the most important country along with canada on the face of the earth. >> gang violence claumed the lives of 15,000 people last year alone. it's estimatedt 1200ó[ñiw3ñiw3 president felipe calderon declared war on organized crime in 2006, some 40,000 people have been killed in the cross-fire of gangs fighting for lucrative drug routes into the united states. >> this is not just a drug fight. this is a struggle for the future of mexico. >> reporter: but with so much rampant killing, many question the mexican government's ability to successfully win its war on drugs. kevin tibbles, nbc news, new york. back now on this side of the border, for all their glamour, the duke and duchess of cambridge, william and kate, spent part of this day in one of the less glamorous parts of los angeles as they wrapped up their visit to north america. nbc's kate snow is there for us tonight. kate, good evening. >> reporter: good evening, lester. it is just about over now. the duke and duchess just arriving at l.a.x.

they will be leaving shortly for england after, as you say, a weekend here in california. the end of their trip to canada and california. and today on this final day, they weren't visiting royalty, visiting hollywood glamour here or playing polo. but they were touring skid row. their black range rover drove through one of l.a.'s most infamous areas. 50 blocks of inner city los angeles where an estimated 4,000 people live on the streets. in the heart of that neighborhood, inner city arts, an arts education center where william and kate got their hands dirty. a little painting. a little help with a ceramic turtle. and the royals left their mark in slabs of clay. a teen dance trooup entertained. more than that, a performance about what life is like in south central l.a. ♪

>> reporter: afterwards the duchess called it beautiful. >> i guess we did what we were supposed to. we sent that message that we wanted to send. >> reporter: last stop of the day, a hollywood sound stage filled with 1,700 veterans and military spouses looking for work. 160 employers with jobs. ross cohen is director of mission serve. >> it's enormous that they're here. they are a military family. and they're the most celebrated military family in the world. >> reporter: today's events a stark contrast to last night. a-list stars hit the red carpet. jennifer garner. j lo. jason baseman. hollywood royalty was no match for the real thing. >> they're so enchanting. they're kind of everything you'd want them to be, really. >> reporter: the royal couple didn't disappoint. kate wearing earrings on loan from the queen and a belted lilac alexander mcqueen gown. the same design house that made

her wedding dress. for the first time in america, they pause to greet a few fans. >> amazing. awesome. >> reporter: inside they chatted with barbra streisand, tom hanks and nicole kidman. prince william served as president for the british academy of film and television arts who held the event to honor 42 british actors and film makers to watch. >> when american and british creative talent get together. magic happens. >> reporter: a magical day indeed for one family in particular here. the frihoe family. they are three generations of military, servicemen and women. they met privately with the prince and his wife a short time ago. they called it an incredible experience. lester? >> kate, thank you. the royals' return to london still consumed by the hacking scandal involving rupert murdoch's "news of the world" which went out of business today. murdoch hims6 cc1 test. test.

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at the fee fifa women's world cup today in germany, it's the u.s. against brazil. it came down to one shot by the u.s. >> a near miracle! >> it's been called one of the most riveting games in women's world cup history and with today's upset over brazil, the americans move on to the semifinals playing france on

wednesday. now to a story that surprised us with most of the summer still to go. back-to-school sales are already in full swing in this country. nbc's ron mott looks at what's behind the early push. >> this would be nice but it's too small. >> reporter: this weekend at a target in atlanta, roland and daughter autumn were out looking for school supplies. they plan to check off most of her list a little close tore the start of classes. >> i'm buying these binders because i'm trying to be more organized this year. >> reporter: for retailers a successful back-to-school push. the second biggest consumer buying period after the holiday season. >> we're helping our customers save money, get value. >> reporter: last season americans spent more than $55 billion to send their young ones back to school. it's no wonder retail rs are trying to get a head start. back-to-school sales already under way at stores like toys r

us, walmart and office depot. last month retail sales were up 7.2% at major chains and they're hopeful the trend continues. but with june's small retail sales followed by friday's uptick in the unemployment rate, one analyst predicts the spending will be on a roller coaster ride for the foreseeable future. >> until we get the labor market improvement it's very volatile and touch and go. >> reporter: back at target, autumn and her dad checked out. cashing in on a few bargains long before many are even thinking about heading back to school. ron mott, nbc news, atlanta. up next, in a city where the car is king, the potential for carmageddon. i have copd. if you have it, you know how hard it can be to breathe and what that feels like. copd includes chronic bronchitis and emphysema. spiriva helps control my copd symptoms... by keeping my airways open a full 24 hours. plus, it reduces copd flare-ups.

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your likely to hear the word "carmageddon" a lot this coming week. carmageddon is a worst-case scenario for cars and drivers. all because highway authorities in california plan to shut down a stretch of a major freeway, i-405 that connects the southern part of los angeles with the san fernando valley. residents are being told stay home or get out of town. nbc's george lewis has more tonight. >> reporter: it's one of the most famous freeways in the world. >> bronco that you see on the

freeway contains o.j. simpson. >> reporter: it was the route o.j. used to get home during the bronco chase. but starting next weekend, nobody's going to be getting anywhere on this part of the 405. >> it's just a nuisance. >> i'll be in new york. >> reporter: the section of freeway that will be closed runs from highway 101 in the san fernando valley to interstate 10 in west los angeles. it's a big deal because valley residents traveling into or out of l.at 1200 international airp will have to find alternate routes. if the worst case predictions of officials come true, all the surrounding streets and freeways will be gridlocked. carmageddon. so why do they have to do this? the closure is necessary, they say, because the freeway is being widened. and this bridge, the mulholland avenue overcrossing, will have to be demolished to make room for the extra lanes. >> it's really an effort to complete the gaps in the carpooling network that will

enable the entire region to move more quickly through the corridor. >> reporter: the highway people have enlisted celebrities to warn motorists about the closure via twitter. ashton kutcher tweeted about it and added, in exchange i would like a free pass on that stoplight ticket. erik estrada recorded a service announcement. >> avoid the area or just stay home. >> reporter: then there are those trying to capitalize on the situation. >> we're all hoping for the best. >> reporter: for $150 a person, this helicopter service will fly passengers over the area affected by the shutdown, skirting the gridlock. after it's over, l.a. will have to endure carmageddon 2 in 11 months for the second half of the bridge remodel. >> oh, wow. that's terrible. eagerly awaiting. george lewis, nbc news, los angeles. that's nbc nightly news for this